GM Europe on Tuesday told workers at its plant in Azambuja, Portugal, that production will end with the year-end break in December 2006.

The annual production volume of 75,000 Opel Corsa-based Combo light-commercial vans and passenger vehicles will be consolidated into GM's much bigger plant in Zaragoza, Spain, for cost reasons, the automaker said.

The move makes sense as Zaragoza is the main source plant for GM Europe's Corsa models bar these high-roof models. Many of the parts used to build these models come from the Spanish plant or Spanish suppliers, in any case. 

GM had previously said the per-unit cost of vehicles at Portugal was about EUR500 too high.

The automaker reiterated that point today, saying: "In total, there was a continuing cost penalty of almost €500 per vehicle to continuing to produce in Portugal.

"The main reasons for this shift of production were high logistics cost in Portugal and cost advantages gained through synergies of a joint production in Spain.

"The Azambuja facility is a small facility, which means that overhead and fixed costs are very high on a per unit basis. Its supply base is located relatively distantly in Spain, Germany and other countries, resulting in a significant logistics cost penalty for the facility."

Following pleas from workers and the Portugese government GM agreed to extend the closing date to December 2006, from October as initially planned and said it would will work with local employee and union representatives "to put in place a socially responsible transition agreement for the affected workers which may include retraining and other initiatives".

GM acknowledged efforts by the Portugese government to find ways to narrow the cost gap but said it could not be closed.

The automaker has also offered to repay any unearned state aid and to work with the government to identify new investors for the site.

Meetings with employees are continuing today.

GM Europe president Carl-Peter Forster said: "This is an extraordinarily difficult situation and we are taking this step with real regret.

"While GM has been proud to produce vehicles in Portugal with an excellent workforce for many decades, the microeconomic conditions today allow no alternative to this production shift to Zaragoza."